31 Aug 2016

The August monetary policy review resulted in no
change to policy rates. The accompanying commentary emphasized a continuation
of the central bank’s accommodative stance as well as the long-term inflation
target. However, it also highlighted that short term risks to inflation were on
the upside because of a temporary hardening in food prices, the consequence of
two previous years of drought. An additional $1.5bn of liquidity was injected
into the market by open market operations to ease the impact of the impending
maturity of $20bn of NRI currency swaps. The government announced the
appointment of Urjit Patel erstwhile deputy governor, as the new governor of
the Reserve Bank of India. This appointment presages stability at the central
bank and a continuation of the policy approach of Raghurav Rajan, with a lower
profile.

Consistent monetary policy and GST reform combined
with the expectation that implementation of the seventh pay commission
recommendations and a normal monsoon will boost consumer demand as the year
progresses are underpinning India markets. Evidence of companies using free
cash flow to reduce leverage may drive revisions of earnings estimates for the
current year, limiting downside risk in the market, in the absence of eternal
shocks. Indian equity return prospects look good.

Infosys has invested $4mil in the Israeli company
Cloudyn to provide support to customers migrating from legacy IT infrastructure
to cloud applications. The company also announced the cancellation of a five
year, $335mil contract for building IT infrastructure for RBS, which has
cancelled its flotation of a separate bank named Williams & Glyns. The
decision affects 3,000 staffers. TCS has paid $26mil to settle a long-standing
lawsuit with Orange County California. Lupin has acquired a portfolio of 21
drugs from Japanese owner Shionogi for $150ml, to expand its market share in
the country. The company’s US subsidiary Gavis has received approval for two
generic launches: an extended release capsule of potassium chloride and a
treatment for bacterial infections. HCL Techno has received Competition
Commission clearance for a stock swap which will allow completion of its acquisition
of businesses from Geometric.

We have seen the late season results in the portfolio of our fund that mostly surprised on the upside. Shemaroo reported sales ahead
by 23.5% and profits ahead by 19.5%. Indian Hotels saw an increase of 5.6% in
sales and profits up by 5.4%. Sales at Lupin rose by 40.3% and profits by 68%.
In the IT Sector, HCL Tech reported a rise of 15.9% in revenues and 15.3% in
profits. Finally we had two companies report flat sales but strong growth in
profits. Kalpataru Power Transmissions reported a 33.3% jump in profits,
including a substantial reduction in interest costs. Indraprashtha Gas reported
a 44.3% jump in profits in the first quarter.

In the monsoon session of parliament, the Lok Sabha
passed a Bill providing for accelerated recovery of bad loans by banks. In the
Rajya Sabha, the government finally engineered passage of the GST
Constitutional Amendment Bill. This paves the way for a long series of state
and Union level legislation to implement GST and put in place a single market
in indirect taxation in India. Execution is scheduled for April 1st,
2017 but in practice is likely to take somewhat longer. Nonetheless, this
political achievement will restore the Modi government’s reputation as a driver
of reform.

Equity markets have mostly moved sideways in August
as senior traders went on vacation and those left behind hung on the reports
from the central bankers’ summer camp at Jackson Hole. India, as expected moved
in sync as the Nifty50 traded in a range of 3% before closing down 266 points
at 8573. Strong sentiment held the index above the 8500 level. Volatility was
stable in the low teens, the India VIX trading between 12 and 16 before closing
at 14 for a drop of a point. Stock price movements were pretty much
results-driven: prices typically falling on the announcement before recovering
on mature consideration. Nifty futures are trading at a premium of about 1%.

16 Aug 2016

India has discovered large highly enriched
accumulations of natural gas hydrates in the Bay of Bengal which are capable of
being exploited. The GST constitutional amendment bill has
been under intense negotiation between the states and central government since
the Monsoon Session of parliament got under way, The Bill may be tabled in the
Upper House this week if the government thinks it stands a good chance of passing.
This would give sentiment a good boost and potentially sustain the surge of
foreign interest in Indian equities.

15 Aug 2016

Equity
markets have been stable while central bankers have sat on their hands. The US
economy is showing new signs of strength, prompting the Fed to hint at the next
interest rate move, while Japan and Europe are still in need of more policy
stimulus. In India meanwhile, we had a flat week followed by a 98-point rise as
a surge in foreign interest drove the Nifty up to 8639 for a gain of 1.1% after
trading in a range of 2.4%. Foreign portfolio investors were net buyers of
$822mil in cash equities as domestic investors sold a net $439mil. Market
breadth was strong with advances outrunning declines b more than two to one and
buying spread across the board. Volatility was stable with the India Vix
trading down from its opening of 16 to a low under 12 before closing at 15 for
a fall of a point. Strong buying drove the index futures to close at a premium
of 1.6% to cash, the highest premium for some time.

9 Aug 2016

The outgoing RBI governor has ruled out an
imminent interest rate cut due to inflationary pressures arising from food
prices, which have been rising following a succession of weak harvests. The
nomination of a successor to Raghuram Rajan has been pushed back until after
his final review of monetary policy, due in the first week of August. This
year’s kharif sowing is progressing strongly as the monsoon rains continue to
match early optimism. Overall rainfall had reached 100% of the long-period
average by July 28th. A slight deficit nationally in the latest week
prevented the average being in excess to-date but the forecasts for geographic
coverage and overall precipitation continue to be good through August.
Reservoir capacity is now also recovering from drought conditions and has
reached 34% after being in the teens only two weeks earlier.

1 Aug 2016

Torrent Pharma is one of a group of bidders
negotiating to acquire a portfolio of European products being offered for sale
by TEVA. Lupin has launched two generic oral contraceptives in the US market on
receipt of USFDA approval. The company has also received initial approval for a
generic version of Lexiva tablets which have market sales of $76mil a year.
Lupin is also in negotiations with two Japanese producers to acquire their
portfolios of off-patent medicines.

About Himalayan Fund NV

The Himalayan Fund N.V. is an investment company with its primary objective to generate long-term capital gains for shareholders by investing in India.

This blog shares with you interesting, weekly news about the Indian economy. It provides insights about the financial situation in India and its market. The team of Himalayan Fund offers knowledge about investment opportunities relating to India.

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